Last week was huge for international investors curious about India. Fools learned that India is taking the right steps toward becoming a more investor-friendly nation, thanks to a growth-oriented budget presented by the Indian finance minister, Pranab Mukherjee, who leads the annual event that essentially determines the economic priorities of the upcoming year.
Details of the doc
Coming as welcome news to international investors, the 2011 budget focuses on measures taken to increase investment in the infrastructure and agricultural sectors.
In a prior article, I mentioned that infrastructure woes are one of the biggest challenges faced by foreign investors when it comes to investing in India. Well, this should come as good news: The government showed a keen sense of commitment to address this problem in this budget.
According to official estimates, India plans to spend $1 trillion over the next five years to improve its infrastructure. Now, compare that with the fact that India's total gross domestic product had crossed the $1 trillion mark only in April 2007. Or compare that with the $700 billion bailout package offered by the U.S. government to troubled financial institutions. You can see that the Indian government has ambitious plans ahead. U.S.-India Business Council President Ron Somers says, "The sheer confidence this budget represents is worthy of our praise." The USIBC, by the way, represents about 400 U.S. companies and seeks better commercial ties with India.
The nitty-gritty of the budget
To fund its infrastructure development, India plans to tap foreign funds by raising the foreign institutional investors cap in the infrastructure sector. The government has permitted Securities and Exchange Board of India (the Indian equivalent of the Securities and Exchange Commission) registered mutual funds to accept subscription from foreign investors for the equity scheme. And the good news is the FII limit for investment in corporate bonds issued by companies in the infrastructure sector is being raised from $5 billion to $25 billion. This is huge news.
The U.S.-India CEO forum had discussed a $10 billion debt fund to finance infrastructure during Obama's visit to India last November. Last week's budget reflected just that. That forum consists of key companies that can play a substantial role in the debt fund. Led by Honeywell
The real opportunities
So what are the names and ideas to capitalize on as part of this larger budget initiative?
As just one piece of this larger trend, one should pay special attention to the transportation sector. The movement of goods in ports, trains, and highways needs to speed up. The government realizes this as a top priority. The fixing of chronic shortages of electricity and improvement in urban infrastructure have been prioritized.
Road and rail network needs are huge. This is exactly where global infrastructure companies can come into play. AECOM Technology Corp.
Indian ports are also a key target of investment. Marine construction is a huge part of development as India's export-import relies mainly on the development of these ports. Companies such as Great Lakes Dredge & Dock Corp. that have expertise in marine construction with dredging and commercial and industrial demolition operations should get special consideration during the next few years. GLDD already has experience working off India's west coast. These companies support the construction of breakwaters, jetties, canals, and other marine structures. India is way behind in these particular necessities, and if the country plans to expand its export figures, these areas and more will be key areas of development.
The Foolish bottom line
The dreams of a richer India are slowly taking shape as opportunities start flowing and luxuries start to become realities. The recently released budget is a massive part of that equation as it will greatly structure the flow of investment dollars in the coming years. Pay close attention. We'll have more on India's budget and its ramifications in coming days.
Isac Simon doesn't own shares of any of the companies mentioned in the article. PepsiCo is a Motley Fool Income Investor selection. Motley Fool Options has recommended a diagonal call position on PepsiCo. The Fool owns shares of JPMorgan Chase and PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.